Thursday, April 24, 2008

Globalismo

For those with lingering doubts about the iron laws ofcapitalism—actually, there is basically only one, whichis you go where the money is or is likely to be—then theannouncements of April 17 will have dispelled themonce and for all. First, Fisher & Paykel confirmed thatit would close its Dunedin factory and shift productionto countries like Thailand and Mexico. On the same daythe ANZ bank said that 500 data-processing jobs wouldbe moved offshore; but for the moment let’s focus onF&P, a New Zealand company of long standing. As oneof our leading and most enterprising manufacturers forhalf a century, no one should question its historicalcommitment to this country; and I was impressed by theevident sincerity of managing director John Bongardwhen he said how much it grieved him to make such anannouncement.

But what’s a guy to do when, as James Weir pointed outin the Dominion Post, F&P will pay no tax at all inThailand for the first eight years, and the Mexicanworkers will get less than $4.50 an hour? As Weir alsosays, "global manufacturing is a race to the bottom," andF&P have been going ever more global since 1987. At thealtar of globalismo, one sooner or later will sacrificeeverything—home, friends, family, nation, loyalty, senseof identity, all.

Are nation-states, though, so powerless in the face of thistrend? It ain’t necessarily so. The first two reasons formoving that rolled off Bongard’s tongue were the risingKiwi dollar and interest rates, and neither of those is aGod-given force of nature beyond governmental control.Both, in fact, could be addressed through reform of theReserve Bank Act, which more and more is taking on theaspect of a constipatory blockage in the alimentary canalof the New Zealand economy.

Not to put too fine a point on it, for the sole sake ofcontaining inflation the act keeps both interest rates andthe Kiwi dollar damagingly high, to the detriment inparticular of exporters, upon whom our economy’slifeblood depends. It means that no matter how well theydo in terms of production and efficiency, exporters willbe penalized by the poorer returns consequent on anovervalued exchange rate. As stated earlier this year byJohn Walley, chief executive of the Manufacturers andExporters Association (MEA), this made a mockery of2007's being officially designated Export Year. "Despitethe best of intentions," wrote Walley in the New ZealandHerald, "the scheme failed because it generally providednothing tangible to exporters to compensate for theimpact of less than a tenth of a cent adverse change inthe dollar."

In other words, so long as the dollar rides high and free,any attempt to incentivize exporters is like pushing themforward while cutting the ground from beneath their feet.

The MEA wants the Reserve Bank Act amended so thatdomestic inflation is specifically targeted withoutcollateral damage being done to the export sectorthrough the impact of the exchange rate. There are otherways of tackling inflation, as Bryan Gould has argued inan impressive submission to the Finance & ExpenditureSelect Committee’s long-running and seeminglyinterminable inquiry into monetary policy; and there areother ways of monitoring and regulating exchange ratesin order to keep people working, producing andexporting. Otherwise, as Gould says, "As a country, wecease to be interested in making new wealth, because it isjust too hard. We concentrate instead on manipulatingexisting wealth and on creating higher values in existingassets like housing."

Ever since the excessive inflation of the late 70s and early80s our policy-makers appear to have lived in terror ofthe beast’s return: the Reserve Bank Act, which sodominates the economic landscape, was created preciselyto prevent such a calamity. In the process, however, somevery silly and counter-productive things have been allowedto happen. Sooner or later, maybe, F&P would have closeddown all their New Zealand operations; but I’m bettingthat, had monetary policy not been such a be-all and end-allfor the past 20 years, they would have stayed around a lotlonger. Their departure, factory by factory, worker byworker, should cause us all in New Zealand to think longand hard about the macro-economic course to whichsuccessive governments have committed us.